The fate of a unified, pan-Canadian securities regulator rests with provincial leaders after the Supreme Court of Canada unanimously endorsed legislation to create one.
The question now is whether there remains the political will to finish the project, a quest that goes back to 1935.
On Friday, the Supreme Court gave its blessing for a pan-Canadian regulator, which would govern the country’s financial industry, to be known as the Capital Markets Regulatory Authority (CMRA). Canada is the only Group of 20 country that does not have a national securities regulator. Its proponents have struggled to create one for decades because of political tension between the provinces and Ottawa, as well as the intricacies of the country’s constitutional law.
The momentum to create a national regulator picked up 10 years ago, but in 2011, the Supreme Court rejected Ottawa’s plan for one, saying the federal government had overstepped its authority. However, it left the door open to a more co-operative approach with the provinces.
A new proposal was drafted in 2013, and its supporters have made significant headway since – most notably, clearing the Supreme Court on Friday. However, the key political leaders that created the current plan are no longer in office. The late federal finance minister Jim Flaherty used to be one of project’s biggest, and most influential, backers.
While the ruling “confirms that the legal framework, including the governance regime that was directed by the first Supreme Court reference, has a sound constitutional basis,” Lawrence Ritchie, a partner at Osler Hoskin & Harcourt LLP, said in an interview. "What now needs to follow is the political will of the participants to get it past the finish line.”
Echoing this sentiment, Ed Waitzer, a partner and head of the corporate-governance group at Stikeman Elliot LLP, said “it will be interesting to see if any of our current leaders are prepared to expend the political capital that will be required to move this forward decisively."
The argument for a national regulator is that it will make securities rules more consistent across the country, which will help regulators pool their resources for enforcement actions, while removing red tape for businesses, which must now abide by, and file documents with, a patchwork of provinces and territories.
A unified regulator would also simplify policy decision-making. Under the status quo, each jurisdiction has an equal voice and decisions are made by consensus, not by majority votes.
The proposed CMRA is supported by five provinces and one territory – Ontario, British Columbia, Saskatchewan, Prince Edward Island, New Brunswick and Yukon. The federal government has also backed the idea. The provinces must now each enact a uniform Capital Markets Act, which harmonizes capital-markets laws, as well as a Capital Markets Regulatory Authority Act, which creates the regulator. The federal government, meanwhile, must enact the Capital Markets Stability Act, which addresses systemic risk in Canada’s capital markets and creates new criminal offences related to capital markets.
Before Friday’s ruling, Ontario and British Columbia had said little about their current positions. After so many years of delays the proposal arguably seemed likely to die.
But shortly after the ruling, Ontario voiced its support. In a statement on Friday, a spokesperson for Finance Minister Vic Fedeli said the province is “pleased” with the ruling and is “committed to working with the other participating jurisdictions towards the launch of the system.”
British Columbia also offered its support – albeit in a more muted tone. “We believe there are opportunities for B.C. in a Canada-wide approach to these types of capital-market protections and regulations,” spokesperson Sonja Zoeller in an e-mail. “But we also know that we need to move ahead on our priority of getting white-collar crime out of B.C.”
Quebec and Alberta oppose the plan, which is structured as a co-operative agency run by those provinces and territories that choose to opt in. Overseen by a council of ministers from each participating jurisdiction, this pan-Canadian approach was crafted to ensure that the provinces do not cede power to Ottawa.
After the plan was proposed in 2013, the Quebec government referred it to the Quebec Court of Appeal, which ruled it unconstitutional because the council of ministers interfered with provincial rights, by giving an external body control over provincial law, and federal rights, by giving provinces a veto over federal law.
The Supreme Court disagreed. The court stressed that its opinion does not oblige provinces to participate nor deal with problems that may occur when and if the regulator is running.
Quebec remains opposed and, in a statement on Friday, provincial Finance Minister Éric Girard said the province intends “to retain our autonomy and keep our expertise in Québec.”
Alberta issued a statement on Friday reiterating its belief in the importance having a local regulator that understands the complexities of the province’s market. However, a provincial election is scheduled for May, 2019, which could change Alberta’s stand.
Without Alberta, two of the four largest provinces are not involved.
“If Alberta’s not in it, I’m not sure it’s worth the effort,” Ralph Shay, a former director of the Ontario Securities Commission and previous head of Canadian securities law at Dentons LLP, said in an interview.